Last year in his Autumn Statement, the Chancellor announced government plans to extend off-payroll working rules to the private sector (known as IR35). With draft legislation now published for these new off-payroll working rules, we take a look at some of the key proposed changes.
From April 2020, the responsibility to establish whether contractors’ engagements fall within IR35 for tax purposes will be passed to ‘end-users’ (the client).
Who is affected in the private sector?
These new rules will only apply to medium and large organisations. Small companies are exempt if:
their annual turnover is not more than £10.2m
their balance sheet is not more than £5.1m
they employ less than 50 people.
Under the new rules and to be compliant, organisations must determine the status of the assignment using “reasonable care”. The definition of this still needs more clarity and will be included in final HMRC guidance, which we expect to to be issued by the end of the year.
Organisations also have the responsibility to pass the determination status to the party it contracts with in its supply chain, as well as to the end worker.
The Check Employment Status for Tax (CEST) tool which has been created to help organisations determine whether off-payroll rules apply, has been further developed. HMRC is currently working with stakeholders to enhance and develop new guidelines ahead of April 2020.
Status determination disagreements
There is more guidance on status determination disagreements in the draft legislation. Whilst the minimum requirements for establishing a process will be set out by final published legislation, but the draft suggests that:
the organisation will lead the status disagreement process put forward by the end worker or fee-payer
a review and reasoning behind the outcome of their decision must be provided within 45 days
if the organisation does not respond to a request, they then become the fee-payer.
What you should be doing to prepare:
There are some practical readiness steps your business can now take in advance of April 2020:
Identify those individuals who are supplying their services through PSCs in your current workforce and determine if the off-payroll rules apply for any contracts that will extend beyond April 2020.
Consider your method of status determination and establish this across your organisation. Who is going to be responsible?
Put robust processes in place to determine if the off-payroll rules apply, so an audit trail can be maintained.
You can view the draft legislation in full here - https://www.gov.uk/government/publications/rules-for-off-payroll-working-from-april-2020